Yesterday, my parents, who are visiting us from India asked me, that since I write about Personal Finance and Investments for USA and India, what would be a safe investment vehicle to earn a monthly income from their cash reserves. This question caught me a little by surprise, because, since my Investment goal is growth for the long term, I never really thought about this.
So I started doing some research and concluded that for a stable monthly income that is insured and not very risky, the Post Office Monthly Income scheme would be the best. If there are other safe investment vehicles, please let me know in the comments section.
Below is some information about it.
The Post Office Monthly Income Scheme (MIS) provides for monthly payment of interest income to investors. It is meant for investors who want to invest a lump-sum amount initially and earn interest on a monthly basis for their livelihood. The scheme is, therefore, a boon for retired persons.
The post-office MIS gives a return of 9.5 per cent plus a bonus of 10 per cent on maturity. However, this 10 per cent bonus is not available in case of premature withdrawals.
Is MIS suitable for an increase in my investment?
No, the MIS is not suitable for an increase in your investment. It is meant to provide a source of regular income on a long-term basis.
Is MIS suitable for regular income?
Yes, the Monthly Income Scheme, as its name suggests, is best suited to provide regular income. Interest is payable on a monthly basis at the pre-specified rate.
To what extent does the MIS protect me against inflation?
With a fixed rate of return, the MIS does not provide adequate safeguards against high inflation rates.
Can I borrow against MIS?
Yes. Depends if the banker accepts it as a security.
How assured can I be of getting my full investment back?
Like all post-office schemes, the MIS has the backing of the Government of India, and is, therefore, a safe investment. You can be assured of getting your full investment back.
How assured is my income?
Your monthly interest income is assured at the specified rate of interest. Since this scheme has the backing of the Government of India, it is a safe investment channel.
Are there any risks unique to MIS?
No, there are no risks associated with your investment in MIS. This is a risk-free investment that is backed by the Government of India.
This is a monthly income plan that is utilised by those in need of a regular source of income, and is most suited to retired individuals. So, economic factors such as interest rates do not affect investment decisions as far as the MIS in concerned.
Is the MIS rated for credit quality?
No, the MIS does not require any commercial ratings as it has the backing of the Government of India. It is considered to be free of risk.
BUYING, SELLING, AND HOLDING
How do I buy a Post Office Monthly Income Scheme?
You can buy a post office MIS at any post-office in India.
What is the minimum investment and range of investment in MIS?
The minimum investment in a Post-Office MIS is Rs 6,000 for both single and joint accounts. The maximum investment for a single account is Rs 3 lakh and Rs 6 lakh for a joint account.
What is the duration of MIS?
The duration of the MIS is six years.
Can MIS be sold in the secondary market?
No, you cannot trade your MIS in the secondary market.
What is the liquidity of MIS?
Investors can withdraw money before three years, but at a discount of 5 per cent. No such deduction will be made if an account is closed after three years. Premature closure of the account is permitted any time after the expiry of a period of one year of opening the account. Deduction of an amount equal to 5 per cent of the deposit is to be made when the account is prematurely closed.
How is the market value of MIS determined?
As mentioned earlier, post-office MIS cannot be traded in the secondary market. Therefore, the question of market value of MIS does not arise.
What is the mode of holding of MIS?
Post office MIS is held physically in the form of a certificate issued by the post office. In addition, the investor is provided with a passbook to record his transactions against his MIS.
The interest income accruing from a post-office MIS is exempt from tax under Section 80L of the Income Tax Act, 1961. Moreover, no TDS is deductible on the interest income. The balance is exempt from Wealth Tax.
Feel free to suggest any other investments and I’ll take a look at them and write about them.
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